Since education makes a person more likely to leave your region, how do you justify your investment in human capital?

Thursday, November 02, 2006

Globalization's Mobility Imperative

The emerging discontents of economic globalization are America's middle class. During the reign of the United States as global superpower, capital flowed abroad and flourished in frontier marketplaces:

On Oct. 28, 1998, the US Congress established a commission that brought together highly respected experts to examine the effects of the country's trade deficit and the withering away of industrial labor. Donald Rumsfeld, the current US defense secretary, then-US Trade Representative Robert Zoellick, Anne Krueger, the number two at the International Monetary Fund (IMF) and Massachusetts Institute of Technology (MIT) Professor Lester Thurow provided their assessment of the situation at the behest of the president.

Things were going swimmingly for the Americans until the end of the 1970s, the commission report concluded. Family incomes grew virtually at the same rate in all sections of the population during the first three decades after World War II, with those of the poor growing slightly faster. The lowest fifth of US society saw a 120 percent increase in incomes, the second fifth 101 percent, the third 107 percent, the fourth 114 percent and the fifth 94 percent. It was as if the American dream had manifested itself in statistics.

But then the trend reversed, and not just in the United States. Japan had awakened, and global trade had shifted directions. Capitalists left their home turf and went looking for suitable locations to invest in. Direct investment abroad - which had been more or less in harmony with exports until then - rose dramatically.

Until then, investment abroad had served mainly to boost the export of German, US or French products. But then factories themselves began to be relocated, mainly to cut manufacturing costs. Production for the world market became increasingly global itself, which led to a redistribution of capital and labor. Global production increased by a solid 100 percent between 1985 and 1995. But direct investment abroad increased by 400 percent during the same time period. Capital's new mobility began to make the other factor of production, labor, restless, too.

To the extent that labor can chase capital defines the ability to join the ranks of the middle class. In other words, those who refuse to move in order to improve will lose. Stories of brain drain voiced around the United States indicate strong systems of education, empowering people to relocate in areas of prosperity.

I suspect relocation will increasingly mean leaving the country with global integration being the primary metric of economic success. Venture capital flowing out of Silicon Valley presage this landscape. The winners of that game are members of a diaspora, moving deftly between clusters of innovation.